Value Investing and Options

Original Value Investing and Options Ideas, Concepts, and Articles

What's better than peanut butter and chocolate?

How about Value Investing and Options?

(OK - maybe it's not quite as good as chocolate and peanut butter, but it's a close second.)

The following original articles are related to core value investing principles and concepts. Many of them also explore the ways in which customized option trading can significantly improve the value investing approach.

Think of value investing as waiting for Mr. Market to make a mistake and then capitalizing on that mistake.

But when you can also incorporate savvy and customized option trading into the mix, you no longer have to wait for Mr. Market to give you a good deal - because you can engineer your own, and if you do it right, your deals can be a whole lot more lucrative than his.


Option Trading Strategies for Value Investors - Can you use our customized put-writing based Sleep at Night High Yield Option Income Strategy if you're more value investor than income investor? Of course you can - and here's how you would go about incorporating it into your portfolio.

Value Investing with Options - The primary drawback of value investing is that great companies rarely go on sale. Crappy companies go on sale all the time - that is when they're not going out of business. Learn how options can bridge the gap between quality and price and allow you to buy great companies at great prices.

What I Learned About Investing From My 7 Year Old - It turns out that the principles involved in running a successful Coca-Cola stand in a front yard during a neighborhood-wide garage sale are the same ones used by successful long term investors. Learn what I learned from my entrepreneurial son.

Why Value Investing vs. Value Trading Matters - Learn the important difference between value investing and what I call value trading. Are you missing huge opportunities to build long term wealth because you assume value investing means only buying beaten down and battered businesses?

Margin of Safety and Options - 3 Ways to Protect Your Portfolio - If, as Benjamin Graham said, the essence of investing is the management of risk and not the management of returns, how can the individual protect his or her capital from the risk of permanent loss? Here are 3 strategic approaches.

Warren Buffett's Real Rule Number One of Investing - Warren Buffett has a famous quote where he says that the number one rule of investing is to never lose money. And Rule #2, he says, is to "See Rule #1." In this article, I make the case that Buffett's real number one rule of investing is something else, or rather than this criterial is what enables him to "not lose money."

You CAN Invest Like Warren Buffett - Some people are just $^#%#$%#. especially when they're delibeately dishonest and intentionally seek to disempower others. In this piece, I respond to one such person and explain why you can learn a ton from Warren Buffett, and yes, you really can invest like him.

When is the Best Time to Buy High Quality Stocks? - So when is the best time to buy a great business? When it's firing on all cylinders? Or when it's struggling to execute? We also look at the impact that purchase price has on an investment.

How to Calculate Annualized Returns - See the formula for calculating annualized returns on your option trades and the benefits of this metric on your trade performance and trade management decisions.

How to Value Stocks - An Alternative to Intrinsic Value - Why the concept of "intrinsic value" of a business or stock is inherently faulty and the more laid back valuation alternative I propose to replace it.

Valuation and Stock Options - An Example - How to value stocks the lazy way, and why being underwater on a short put position doesn't necessarily mean you're drowning.

Valuing Dividend Stocks - Why Dividend Paying Companies Are Easier to Value and to Predict Future Share Price Than Growth Companies - With a title that long, is a description even needed?

The 3 Types of Value Investing - Which Type of Value Investor Are You? - In this article, I detail the three type of value investors as I see things - value traders, value investors, and synthetic value investors.

Why is Warren Buffett Successful? - Buffett is successful because he's Buffett and has certain ingrained qualities. But he also recognized the lethal (in a good way) cocktail of quality, price (valuation), and time.

Warren Buffett Shareholder Letters

Warren Buffett 1981 Shareholder Letter - Covers: different ramifications of outright acquisitions vs. non-controlling ownership via stock purchases; an entertaining metaphor involving toads and princesses; a summary of the Berkshire Hathaway corporate acquisition philosophy; some important comments on inflation; and relevant commentary on the insurance industry.

Warren Buffett 1980 Shareholder Letter - Covers: power of retained earnings; intelligent share buybacks; inflation; and insurance operations.

Warren Buffett 1979 Shareholder Letter - Covers: the importance of Return on Equity (ROE) as an investing metric; important commentary on inflation; insights on selecting the best businesses to invest in; and discipline in the insurance industry (very applicable to option trading).

Warren Buffett 1978 Shareholder Letter - Covers: why Buffett loves the insurance model; Buffett's investing criteria; the opportunities of common stock; the case for a concentrated portfolio; and why you build more wealth investing than trading.

Warren Buffett 1977 Shareholder Letter - Covers: return on equity vs. earnings per share growth; structurally advantaged investments; and buying shares vs. acquiring companies.

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Warren Buffett Zero Cost Basis Portfolio Current Equity Holdings:

KO - 125 shares
KMI - 100 shares
BP - 100 shares
MCD - 30 shares
JNJ - 25 shares
GIS - 25 shares
PAYX - 25 shares

Open Market Purchase Price: $20,071.83

Less Booked Option Income: $16,341.71

Tot. Discount: 81.42%
Adj. Div. Yield: 19.59%